Section 115VZB of Income Tax Act "Avoidance of tax"
115VZB. (1) Subject to the provisions of this Chapter,
the tonnage tax scheme shall not apply where a tonnage tax
company is a party to any transaction or arrangement which
amounts to an abuse of the tonnage tax scheme.
(2) For the purposes of sub-section (1), a transaction or
arrangement shall be considered an abuse if the entering
into or the application of such transaction or arrangement
results, or would but for this section have resulted, in a
tax advantage being obtained for-
(i) a person other than a tonnage tax company; or
(ii) a tonnage tax company in respect of its non-tonnage tax
activities.
Explanation.-For the purposes of this section, "tax
advantage" include,-
(i) the determination of the allowance for any expense or
interest, or the determination of any cost or expense
allocated or apportioned, or, as the case may be, which has
the effect of reducing the income or increasing the loss, as
the case may be, from activities other than tonnage tax
activities chargeable to tax, computed on the basis of
entries made in the books of account in respect of the
previous year in which the transaction was entered into; or
(ii) a transaction or arrangement which produces to the
tonnage tax company more than ordinary profits which might
be expected to arise from tonnage tax activities.
115VZC. (1) Where a tonnage tax company is a party to any
transaction or arrangement referred to in sub-section (1) of
section 115VZB, the Assessing Officer shall, by an order in
writing, exclude such company from the tonnage tax scheme:
Provided that an opportunity shall be given by the Assessing
Officer by serving a notice calling upon such company to
show cause, on a date and time to be specified in the
notice, why it should not be excluded from the tonnage tax
scheme:
Provided further that no order under this sub-section shall
be passed without the previous approval of the Principal
Chief Commissioner or Chief Commissioner.
(2) The provisions of this section shall not apply where the
company shows to the satisfaction of the Assessing Officer
that the transaction or arrangement was a bona fide
commercial transaction and had not been entered into for the
purpose of obtaining tax advantage under this Chapter.
(3) Where an order has been passed under sub-section (1) by
the Assessing Officer excluding the tonnage tax company from
the tonnage tax scheme, the option for tonnage tax scheme
shall cease to be in force from the first day of the
previous year in which the transaction or arrangement was
entered into.